A report from the regulator out today on the users of its innovation Sandbox, which launched in June 2016, confirmed 41 users are testing a range of propositions.
The Sandbox was intended to offer innovators a safe place to build consumer safeguards into products and test them on a live audience. For example, the FCA required all firms in the Sandbox to develop an exit plan to ensure the test can be closed down at any point while minimising the potential detriment to participating consumers.
The FCA said: “The majority of technology-use cases we have seen so far have been the new application of technologies to traditional products or services, as opposed to using technologies to create entirely new products.
“For example, many firms propose the application of new technologies to reduce operational costs from traditional processes and pass this onto consumers through lower prices.”
In one test, any human amendments were fed back into the algorithm based on the assessments of the qualified debt adviser. In another test, a consumer was handed a suitability report after filling in an online fact find but told not to act until a manual check confirmed it was suitable.
On the mortgage-side, firms are also testing propositions that intend to improve the approval rate for mortgages by providing consumers with a better understanding of what they can afford and a clearer view of mortgage products for which they would qualify.
“These types of solutions aim to increase transparency and inform the consumer’s decision-making process,” said the FCA.
Another mortgage-related product targeted those struggling to sell homes and offered to sell within 90 days, or provide an interest-free loan for 95% of the property value. The test gauged consumer demand and satisfaction for the service and the regulator helped the firm assess the potential risks and implement bespoke consumer safeguards, including capital requirements.
During the test, the firm found that consumer demand exceeded expectations and the firm used consumer feedback to test different pricing structures, delivering better value to the customer.
Financial Management tools
The FCA observed that some financial management tools used innovative methods to encourage saving, monitor spending habits, help plan for retirement and save money in general. A number of Sandbox firms tested the effectiveness of aggregating consumer accounts and using nudges to encourage consumers to make better financial decisions.
The FCA said data sharing between large firms and fintechs can be mutually beneficial for the firms involved, and can deliver benefits to consumers.
Methods of testing caused the large firm to benefit from access to the agile, intelligent technology the fintech firm had built, while the fintech benefitted from access to a large customer base and a rich source of transactional data.
Insuring a future
A number of insurance intermediaries are testing products, including one which asks consumers about their existing assets, presenting this information to the consumer in a consolidated dashboard, then giving them the ability to make a digital will, take out life insurance and insure their assets.
Other innovators are looking to align consumer and insurer’s interests more closely by introducing a savings element to insurance which customers accumulate and can spend if they do not claim on the policy.
Another firm tested an innovative insurance model where the consumer pays the premium at the end of the month instead of the start, improving transparency and potentially lowering the price of the premium potentially.
To date these tests have involved Sandbox firms partnering with large insurers for underwriting capacity, with some large insurers open to engaging and working with firms in this area.
Foreign currency exchange attracted several test models too, with many using digital currencies to make cross-border payments to bypass traditional payment trails, cut costs, reduce transaction times and offer better exchange rates.
A common model involves converting fiat or physical currency, into a digital currency, and then back into a different fiat currency to transmit to the recipient. One firm tested the transfer of funds from Sterling (GBP) to South African Rand (ZAR), in this way and all transactions took place in less than one hour end-to-end, and the fastest took around two minutes, with transfers varying from 5% to 50% cheaper than the best alternative.
On Application Programming Interfaces (API), the regulator observed that transactional information would help firms offer better products and services.
However, in many cases, it is difficult for firms to go directly to the financial institution holding these data and securely gain the access they require, as formal routes for sharing are still unavailable.
However, it said this landscape will ‘evolve’ over the coming year as industry standards develop alongside the implementation of PSD2 and GDPR.
The UK’s Open Banking initiative is working with nine banks to define and develop APIs that will enable consumers and small businesses to share their current account information securely with other banks and third parties.